Single Finance always strives to provide a safe environment for all users of our protocol. We can’t be certain of a lot of things in this era though, and here are some of the major risks that we need to remind you about when navigating the DeFi world.
Under extreme market volatility underwater positions might not be liquidated in time. We try our best to lower the risk by having our strategies operating not only according to liquidation thresholds but also capital protection ratios, offering extra protection to both lenders and borrowers.
Price impact is the influence of a user's individual trade over the market price of an underlying asset pair. If the position you are trying to open is large relative to the pool size and requires swapping, a large price impact could be incurred.
Impermanent loss occurs when farming asset prices change. Our strategies reduce the impact of impermanent loss to minimum by borrowing non-stablecoin assets and thus greatly lowering the crypto exposure. Please do note that, however, even stablecoins can be subject to impermanent loss when they go off-peg, despite that such a situation is by itself unlikely. For more information about impermanent loss, you may refer to the session on the subject in our crash course DeFi in a Nutshell.
When opening a leveraged position, you are borrowing crypto assets to amplify your potential return. When the debt ratio (debt value/ position value) of respective farm exceeds the liquidation threshold, your position will be liquidated to return the borrowed funds to the lender, with the remaining portion back to you. Our strategies operate on Capital Protection Ratios along with liquidation thresholds to help you recover the better part of your capital even in adverse market scenarios. For more information about the exact liquidation thresholds, visit Pool-specific Parameters. To learn more about liquidation, click here.
Our Capital Protection Bot tracks the latest net equity value of every position. Once the estimated closing value reaches the capital protection threshold, the bot will execute the closing action. Under extreme situations such as (i) sharp price changes, and (ii) unexpectedly large Price Impact that is a result of significant amounts being swapped in a shallow liquidity pool, users might receive less than the predetermined capital-protected amount after capital protection.
While smart contracts of our protocol have been audited by third-party firms, there could theoretically still be vulnerabilities. We are working hard on turning Single Finance bullet-proof. Please learn more about our work and audit information here.
We are trying our best to get rid of all potential risks, and we are trying to be as transparent as possible to all our community members. It’s not only Defi; it’s everything in the world, afterall, that could be so unpredictable at times. As a rule of thumb, don’t put in what you cannot afford to lose.
Blockchain's Technical Risks
While we tried our best to develop the most effective and best product for farmers, our protocol still runs on the selected blockchain. The blockchain itself may cause different problems, such as:
- Network congestion
- Transaction failure
- Validators halted
- Any other bugs that would result in an abnormal or unexpected situation
This may affect our critical operations:
- Delayed capital-protection transactions
- Delayed liquidation transactions